The UK and Welsh Governments are launching an Independent Commission into the water sector and its regulation, in what is expected to form the largest review of the industry since privatisation.

The Commission forms the next stage in the Government’s long-term approach to ensuring a sufficiently robust and stable regulatory framework is in place to attract the investment needed to clean up waterways, speed up infrastructure delivery and restore public confidence in the sector.

It follows the Government’s inaugural International Investment Summit last week at which the Prime Minister spoke of the need for regulation and regulators to support growth and investment in the UK.

Launched by the UK and Welsh governments, the Commission will report back next year with recommendations to the Government on how to tackle inherited systemic issues in the water sector to restore rivers, lakes and seas to good health, meet the challenges of the future and drive economic growth.

The recommendations will form the basis of further legislation to attract long-term investment and clean up our waters for good – injecting billions of pounds into the economy, speeding up delivery on infrastructure to support house building and addressing water scarcity, given the country needs to source an additional 5 billion litres of water a day by 2050.

Former Deputy Governor of the Bank of England, Jon Cunliffe, will chair the Commission. With several decades of economic and regulatory experience, his appointment demonstrates the Government’s serious ambitions.

The Commission will draw upon a panel of experts from across the regulatory, environment, health, engineering, customer, investor and economic sectors.

It forms part of the Government’s reset of the water sector by establishing a new partnership between government, water companies, customers, investors, and all those who enjoy our waters and work to protect our environment.

The review will include the future of water sector regulator Ofwat and will consider options which could include abolishing Ofwat. Commenting on the Radio 4 Today programme this morning, in response to a question on whether he believed Ofwat was working effectively, Environment Secretary Steve Reed said:

“There are certainly very severe failures of regulation and governance that underpin the problems that we’re seeing in the water sector.

“What I have asked Sir John to do is look from the bottom-up at the whole sector. Now that will include regulation and the regulator but I’m not going to predict what he might come up with because that is for him.”

Launching the review, Secretary of State Steve Reed said:

“Our waterways are polluted and our water system urgently needs fixing.

“That is why today we have launched a Water Commission to attract the investment we need to clean up our waterways and rebuild our broken water infrastructure.

“The Commission’s findings will help shape new legislation to reform the water sector so it properly serves the interests of customers and the environment.”

Commenting on his new role, Water Commission Chair Sir Jon Cunliffe said:

“I’m honoured to be appointed as chair of the government’s new Water Commission. It is vital we deliver a better system to attract stable investment and speed up the building of water infrastructure.

“Working over many years in the public sector, in environment, transport and the Treasury, and the Bank of England, I have seen how the regulation of private firms can be fundamental to incentivising performance and innovation, securing resilience and delivering public policy objectives.

“I am looking forward to working with experts from across the water sector, from environment and customer groups and investors, to help deliver a water sector that works successfully for both customers, investors and our natural environment.”

“Vital review couldn’t come at more urgent time for water environment and water industry"

Huw Irranca Davies, Wales’ Deputy First Minister with responsibility for Climate Change and Rural Affairs, added:

“This vital review couldn’t come at a more urgent time for our water environment and water industry.

“This shows the fresh approach of our two governments working together on an issue which affects us all as consumers, investors and as stewards of the natural world.

“Both the Welsh and UK Governments are determined to improve water quality and the resilience of the water sector for future generations. We have clear priorities for reform and a shared sense of the work needed across both countries’ policy and regulatory regimes to make this change happen.”

A set of recommendations will be delivered to the Defra Secretary of State, and Deputy First Minister and Cabinet Secretary for Climate Change and Rural Affairs next year. The UK Government and Welsh Government will then respond with the proposals they intend to take forward.

The objectives of the Commission are to recommend measures to ensure the regulatory system delivers:

• Clear Vision: Establishing clear outcomes for the future and a long-term vision for delivering environmental, public health, customer, and economic outcomes.
• Strategic Planning: Adopting a collaborative, strategic, catchment approach to managing water, tackling pollution and restoring nature.
• Better Regulation: Rationalising and clarifying requirements for companies to secure better customer and environmental outcomes.
• Empowered Regulators: Ensuring regulators are effective in holding water companies accountable, for example for illegal pollution.
• Improved Delivery: Enhancing the sector’s ability to meet obligations, including clean rivers, lakes, and seas, while driving innovation.
• Stable Framework: Ensuring a regulatory environment that attracts investment and supports financial resilience for water companies.
• Consumer Protection: Safeguarding consumer interests and affordability through transparent and fair governance.
• Resilient Infrastructure: Delivering and maintaining robust infrastructure on time, anticipating future needs and climate challenges.

Independent Commission is third stage of  Government’s water strategy

The Independent Commission is the third stage of the Government’s water strategy. In his first week in office, the Secretary of State secured an agreement from water companies and Ofwat to ringfence money for vital infrastructure upgrades so it cannot be diverted to shareholder payouts and bonus payments.

Since coming to power, the Government has already introduced major legislation with new powers to bring criminal charges against water executives and a ban on bonuses.

The Water (Special Measures) Bill, sets out tough new measures to crack down on water companies failing their customers, including:

• Bringing criminal charges against persistent lawbreakers, including imprisonment.
• Strengthening regulation to ensure water bosses face personal criminal liability for lawbreaking.
• Giving the water regulator new powers to ban the payment of bonuses if environmental standards are not met.
• Boost accountability for water executives through a new ‘code of conduct’ for water companies, so customers can summon board members and hold executives to account.
• Introduce new powers to bring automatic and severe fines.
• Require water companies to install real-time monitors at every sewage outlet with data independently scrutinised by the water regulators.

In addition, the cost recovery powers of regulators will be expanded to ensure that water companies bear the cost of enforcement action taken in response to their failings. The Environment Agency will undertake a consultation on the implementation of the new powers.

"No parties involved in the sector can be happy with the current arrangements"

Jon Phillips, Chief Executive of the Global Infrastructure Investor Association said:

“The Secretary of State should be congratulated for acting swiftly to put in place this much needed review and reset of the water sector. No parties involved in the sector can be happy with the current arrangements, and that includes investors whose capital is vital to addressing current and future environmental challenges.

“The government has heard loud and clear that the sector needs both a long-term plan and a regulatory framework that places greater emphasis on attracting investment. We look forward to the opportunity to support the Commission’s work and hope that its findings can be put into practice at the earliest opportunity.”

The announcement has been widely welcomed by a wide range organisations, including environmental NGOs.

Rivers Trust - “35 years after water privatisation, this review is long overdue"

Mark Lloyd, CEO of Rivers Trust, said:

“35 years after water privatisation, this review is long overdue, which makes it even more welcome. Our rivers have been flatlining for far too long, alongside the failure of our current systems to manage ageing infrastructure and population increase they face huge strategic challenges from climate change and biodiversity decline.

“Incremental policy tweaks will not fix our water system, and the review must look beyond the water industry to include land and water management in both urban and rural areas. There needs to be much more focus on delivery of cost-effective solutions, through an integrated systems approach.

“We will be keeping a close eye on the work of the commission to ensure it considers land use, nature, drought, flood and pollution in concert, because they are all intrinsically linked. We look forward to working closely with Sir Jon Cunliffe and his team on a new system.”

"Review comes not a moment too soon"

Joan Edwards, Director Policy and Public Affairs at The Wildlife Trusts, said:

“This review comes not a moment too soon, given the precarious and polluted state of our waters, and the looming threat of future water shortages.

“It’s crucial that regulation drives companies to invest in the solutions that can best deliver improvements for nature at the same time as limiting bill increases.

“We look forward to supporting the Commission’s work by feeding in on the importance of a healthy environment and the changes needed to get us there.”

Water UK welcomes creation of Independent Water Commission

Water UK, the body which represents all the UK water companies, has welcomed the Government’s creation of the Independent Water Commission. Water UK said in a statement:

“We welcome the Government’s Independent Water Commission. Our current system is not working and needs major reform. The regulatory system is overly complex and too slow to approve vital new infrastructure. New homes have been blocked and even a new cancer hospital has been held up due to a lack of water. We hope this Water Commission can take a fundamental look at the root causes and provide clear recommendations on the changes needed.”